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Financial Reporting

The AICPA governing council last fall formally named
the Federal Accounting Standards Advisory Board the accounting
standard setter for the federal government. Amid controversy over its
action, the council elevated FASAB to the level of FASB and GASB,
which set standards for nongovernment entities and for state and local
governments, respectively.

Future FASAB statements of federal financial accounting standards,
as well as those it issued since March 1993, now have the authority of
GAAP. Formerly, FASAB’s guidance was considered to be an “other
comprehensive basis of accounting” (OCBOA), which is not as widely
recognized in the United States as GAAP. The secretary of the
Treasury, the director of the Office of Management and Budget (OMB)
and the comptroller general established FASAB in 1990.

The AICPA said FASAB’s new authority means that, for the first time,
the federal government will be able to report its financial position
according to accounting standards widely recognized by CPAs.

Supporters of the council’s action believe this advantage outweighs
any misgivings voiced by critics. “This is another marker in the
progress of the federal government toward improving its financial
management and accountability,” said Robert K. Elliott, chairman of
the AICPA board of directors.

Four pieces of legislation provided the impetus for stronger federal
financial management: the Chief Financial Officers Act of 1990, the
Government Performance and Results Act of 1993, the Government
Management Reform Act of 1994 and the Federal Financial Management
Improvement Act of 1996. In particular, these laws mandated annual
independent audits of federal government agencies’ financial
statements.

The council’s decision worried some observers. Among them was FASB
Chairman Edmund L. Jenkins, who questioned whether FASAB is
sufficiently independent for its new role. Several of its nine members
are currently employed by federal agencies, including the
Congressional Budget Office, the Department of Defense, the GAO, NASA,
the OMB and the Treasury. Jenkins said that FAF Chairman Manuel
Johnson and GASB Chairman Tom Allen share his concern.

“The Treasury is subject to the standards promulgated by FASAB, yet
it has a veto power over those same standards,” Jenkins said, adding
that the Treasury, the GAO or the OMB can unilaterally terminate
FASAB’s authority with 120 days’ notice. “Where is the independence
under this veto power and termination arrangement?” he asked.

But Elliott expressed confidence in FASAB’s impartiality. “FASAB has
committed to replace any members who are not materially independent,
and the AICPA can rescind its recognition if FASAB does not, in fact,
act independently,” he said. “This small risk must be balanced against
a probable large gain: a better-informed U.S. government and
citizenry.”

In making its decision, the council had to determine whether FASAB
satisfied the requirements of Rule 203 of the AICPA Code of
Professional Conduct. Earlier, the council had approved criteria on
which such a determination should be based: independence, due process
and standards; domain and authority; human and financial resources;
and comprehensiveness and consistency.

An AICPA-appointed task force weighed FASAB’s compliance with these
measures and recommended remedial changes in its memorandum of
understanding and rules of procedure. Upon completion of those
modifications, the council approved FASAB’s new designation.

CPAs Get an Extra 30 Days to File HUD Reports

In response to the AICPA’s expressed concerns about
CPAs’ heavy auditing workloads, the Department of Housing and Urban
Development extended the deadline for filing audited financial
statements for multifamily housing projects. Formerly, such statements
were due 60 days after a project’s fiscal year ended; effective
immediately, that time frame is increased to 90 days. Details of the
new requirements are available at www.hud.gov/reac/secondcycle.pdf
.